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Why listen to so-called ‘experts’ that were so wrong about Brexit?

There is a short memory in the public discussion about economics. If there wasn’t many players that get the wide platforms to express their views, opinions, forecasts, etc would burnout very quickly given how appalling their track records are. I was thinking about that while looking at the most recent Foreign Direct Investment data and reading UK Guardian articles about the demise of the most recent British Prime Minister. While it is very hard at present to trace the economic events in terms of individual drivers because Covid, the Ukraine situation and OPEC+ have certainly muddied the waters, there is some clear evidence available that demonstrates the mainstream anti-Brexit analysis and predictions was completely wrong. Given the same sort of characters and institutions are consistently given platforms in the media to proselytise and scare the b-jesus out of people about fiscal positions etc, one wonders why they retain credibility after being so wrong about Brexit, while commanding the floor of authority. My position is that they were wrong then and remain unreliable sources of information about what is happening now.

The most recent offering on what happened to Liz Truss and her short-lived premiership appeared in the UK Guardian (November 12, 2022) – Revealed: the £30bn cost of Liz Truss’s disastrous mini-budget.

This is meant to be a progressive news source with informed opinion but this article (and previous articles by these journalists is pure austerity economics of the sort the most conservative ‘sound finance’ voice would articulate.

It is full of the fictions that make it hard for us to have a reasonable debate about these matters.

The term “fiscal hole” is recurring despite it having no functional meaning in any reasonable understanding of the fiscal capacity of the British government.

The authors talk about a “staggering £30bn” in the same sentence as “cost the country”.

And apparently the “fiscal hole” has to be filled in immediately (“autumn statement”) with “a huge programme of tax rises and spending cuts”.

Now, I have been through all the flawed logic of this sort of framing before and so I won’t dwell on it here.

Suffice to say, there is no mention of the broader context within which the figures bandied around in the article are to be understood.

The logic presented to the readers is that a fiscal deficit is bad, a larger fiscal deficit is worse and governments should increase revenue and/or cut spending to rid itself of such a deficit.

The larger the deficit the larger the response required.

That is straight austerity thinking.

There is nothing that can be said about a fiscal position without discussing the context – the state of the external sector (an external deficit typically requires a higher fiscal deficit to ensure full employment), the state of the private domestic sector (how much saving overall, how much debt).

I am in no way providing support for the crazy fiscal announcements that the Truss-Kwarteng team tried to get away with.

Giving more public cash to the rich was neither warranted in the situation nor capable of ever being justifiable in my view.

The extent to which the Truss/Kwarteng duo wanted to increase net public spending was also, in the circumstances, too great and they should have concentrated their ‘cost of living’ response to helping the lower income groups while they rode out the transitory factors driving the current inflationary episode.

But that sort of reasoning is quite different to seeing a deficit as a ‘hole’ that somehow triggers anxiety and a massive reversal of government support for a very fragile economy.

The point of citing the article however is this.

The authors derive the estimates of the fiscal position from various external sources who also had a lot to say about the likely ‘costs’ of Brexit.

This is where the memory factor is relevant to assessing the credibility of commentary and input from different commentators and institutions.

Remember back in the years leading up to the June 2016 Referendum vote and the period after the decision was taken by the British people to leave the EU?

Remember all the hysteria.

Remember all the mainstream economists that were continually being given a privileged platform in the media to publish outlandish forecasts of all manner of disasters.

The fact that they made these forecasts was not objectionable.

It was the fact they held out that they were ‘scientific’ and aiming to help the ignorant British voter be better informed.

The reality was that the participants were anti-Brexit and used the chimera of their authority to hide their ideological preference for the neoliberal EU cabal behind claimed sophisticated economic analysis.

The formal policy institutions (Treasury and Bank of England) published scandalous predictions that have not been close to what has transpired.

The Office of Budget Responsibility should be scrapped given its appallingly inaccurate and irresponsible forecasts that were intended to influence the vote for the Remain camp and derail the process of exit after the vote.

And then there was a host of economic think tanks and individual economists predicting the worst.

Since then, the UK Guardian has given the platform to William Keegan to continually claim all manner of evil about Brexit without coming to terms with the data.

The editors think it is good journalism to have him twist every bad piece of news as a symptom of the disaster that befell Britain when it left the EU.

Somewhat offsetting the anti-Brexit bias of the UK Guardian was the reasoned input from Larry Elliot (November 6, 2022) – Brexit isn’t to blame for our current problems; it is still an opportunity – which presents a view that is close to the view I have made public since 2015.

1. It is ridiculous to blame the current economic malaise in Britain (as far as it is) on Brexit.

2. The wild predictions of doom were wrong and were deliberately designed to give the Remain side more votes than it deserved.

3. Brexit just puts the onus on the government now to deliver sensible policy without being hampered by the extreme neoliberalism and austerity mindset of the EU.

Whether it turns out good or bad depends on the decisions of the government. It certainly provides that government or future governments with, in the words of Larry Elliot – “an opportunity to look at an under-performing economy in a new light and to do things differently”.

4. And concuring with his final thought: “Whether that opportunity will be seized or squandered remains to be seen, but there is no gorilla in the room, just a mouse with a loud squeak.”

The data

I have deliberately avoided writing about Brexit in the last few years because there has been so much ‘noise’ in the data that is is impossible at this stage to separate all the elements.

The global pandemic has distorted the data so much that time series analysis (a branch of econometrics that I specialise in) is very difficult now.

We have major breaks in the time series data which has to be treated as outliers and expunged. But that introduces new problems.

Compounding the difficulty in assessing the impacts of the Brexit decision so far has been the OPEC+ moves and the Ukraine situation, both of which have distorted the picture in ways that are yet to be fully understood.

Suffice to say all these factors have worsened the economic outlook for all countries.

But we do know some things.

We have clearly moved on from the ‘sky-will-fall-in’ predictions that dominated the early period around and after the Referendum.

1. There wasn’t a major recession in 2017 as predicted by Goldman Sachs who had apparently provided half a million pounds to the Remain campaign.

Other commentators predicted similar negative GDP outcomes.

The Office of National Statistics data showed that GDP growth was 2.2 per cent over 2016, rising to 2.4 per cent in 2017, By 2019 it was still growing at 1.6 per cent per annum and rebounded to 7.5 per cent in the aftermath of the pandemic (Source).

Research by the Briefings for Britain group – What impact is Brexit having on the UK economy? (published October 13, 2022) – shows that:

(a) “growth in UK GDP since 2016 Q2 had been above Germany and Italy and only modestly behind France”.

(b) “there is no evidence that UK growth has underperformed since either the Brexit referendum or the period outside the EU’s single market and customs union since January 2021.”

(c) “Our view is that the UK economy has performed largely in line with its main comparator countries since the Brexit referendum. Over the entire post-WW2 period per capita GDP in the UK has grown at about the same rate as the US or (since 1973) as the G7”.

(d) Further, counterfactual studies try to overcome the implausibility of the previous ‘collapse’ scenarios, by claiming that the UK may not have collapsed but would have stronger growth if they had have remained in the EU. The Briefings group conclude that these studies use flawed methodology and assume that previous recovery periods (after recession) would continue “indefinitely”.

2. The Treasury Department produced its – HM Treasury analysis: the long-term economic impact of EU membership and the alternatives – in April 2016.

It gave its authority to this prediction, for example:

Unemployment effects have generally not been reported in these studies. PwC’s report for the CBI estimates unemployment would reach 7% to 8% in 2020, compared with a projected rate of 5% if the UK remained in the EU. The impact on total UK employment is estimated to be a fall of 550,000 to 950,000.

At the time of the Referendum, British unemployment was 5 per cent.

It reached a low of 3.8 per cent just before the pandemic began.

It peaked during the early waves of the pandemic at 5.1 per cent and is currently at 3.5 per cent (Source).

At the time of the Referendum, total employment was 31,779 thousand.

By the end of 2019, it was 32,985 thousand, a net increase of 1,206 thousand.

In July 2022, it was 32,754, slightly down on the pre-pandemic level (Source):

So the 550 to 950 thousand loss projected was obviously grossly inaccurate.

FDI will decline substantially

The H.M. Treasury noted that in formulating their forecasts:

The judgement must be based on evidence.

Well, we do have some evidence that we can consult.

The Treasury quoted a number of research papers that suggested Foreign Direct Investment inflows would fall variously by 22 per cent to 27 per cent as a result of leaving the EU.

In summation, they concluded:

The HM Treasury analysis in this document is consistent with the results in these papers.

A recent study by neoliberal institution Peterson Institute for International Economics and authored by a former member of the Monetary Policy Committe of the Bank of England – The UK and the global economy after Brexit (published April 27, 2022) – claimed that “Between 2017 and 2020, average UK FDI inflows as a share of GDP plummeted to its lowest level since the 1980s”.

Plummeted is one of those descriptors that authors use when they want to shock and modify the reality in their favour.

The data shows that inward FDI flows have been declining for the last 20 years in Britain and there has been no acceleration after Brexit.

Here is the aggregate FDI inflows (USD millions) for Britain from the March-quarter 2013 to the June-quarter 2022 (OECD data).

In fact, taking out the volatility in the series, the trend is fairly flat after the Referendum.

Certainly not plummeting.

However, the Briefings for Britain analysis argues that:

… these analyses typically focus on measures of overall FDI which are heavily influenced by large mergers and acquisitions flows …

Which means that it is hard to discern anything from that level of aggregation in the data.

If we examine what are referred to as Greenfield investments the picture is quite different.

These are new projects that are attracting FDI inflows and presumably reflect confidence that competitive returns will be achieved once operations begin.

Here is the total value of Greenfield FDI inflows from 2003 to 2021 (USD millions) with some of the major EU countries as comparisons (UNCTAD data).

The Briefings for Britain report concluded that:

Looking at greenfield investment trends we can see that the UK since 2016 has continued to attract more greenfield investment than any of the large EU countries … Moreover, from 2016-2021, the volume of greenfield investment into the UK rose from US$32 billion to US$44 billion, i.e. by over a third … This was the fourth best year since 2003, despite the pandemic – and ‘despite Brexit’.

So the doom predictions have not been borne out.

The most recent report from the British Department of International Trade (DIT) – Inward Investment Report 2022/21 – provided detailed estimates of new FDI by region and jobs created.

They conclude that:

1. “the UK economy, supporting Foreign Direct Investment (FDI) projects that yielded over 47,000 new jobs, almost 3,000 more jobs than the year before”.

2. “UK FDI projects were expected to dip 30-45% in 2020 compared to 2019, as a result of the impact of COVID-19 … The UK, however … recorded only a 17% decrease in FDI projects”.

3. “Nearly 74,000 jobs were created or safeguarded in the UK last year thanks to foreign investment. 55,319 new jobs were created in 2020/2021, which is comparable to 2019/2020”.

The Report provides much more detail on the growth of greenfield FDI in Britain in recent years.

The outcomes appear to be at odds with the anti-Brexit narratives.

This sort of evidence permits Larry Elliot to write:

Britain continues to attract more foreign direct investment than any other European country.

Conclusion

While it is still too early to make definitive claims about the impacts of Brexit – and may never be possible given the interruption in the data from the other multiple disturbances (Covid, war, OPEC, etc), the evidence to date – tentatively examined – suggests that Brexit has not undermined the British economy in any way remotely consistent with the predictions from the anti-Brexit lobby.

And returning to the supposition at the beginning – if they were so wrong then why trust their forecasts now about fiscal positions, etc

That is enough for today!

(c) Copyright 2022 William Mitchell. All Rights Reserved.

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    This Post Has 35 Comments
    1. The Ukraine situation and OPEC+ have certainly muddied the waters !!

      I would suggest that it has done much more than muddied it is a sludge knee deep in neocon neoliberal dogma!

    2. Economics, as practiced outside this haven, has nothing to do with data analysis. It is a priesthood there to back and provide cover for a political worldview – in this case the one of the globalist technocrat who despises democracy and sees nation states as obsolete.

      They use the ‘debt and deficit’ narrative to manipulate minds. Defeating that requires a more compelling narrative with a nastier bogeyman who has to be totally destroyed.

      The current narrative is the old “we have to appease an angry god with sacrifice”. The way to defeat that is “the god is a false god and must be destroyed along with all those who believe in it” narrative.

      If the Gilt market is the angry false god, then the policy has to be to shut it down. Difficult for a market to dictate to government if it doesn’t exist. Those who defend it would then only be doing so to protect their sinecures and their evil belief in the One True Interest Rate.

      No longer will we sacrifice the lives of our young through high mortgages rates and artificially high investment costs to fund the priesthood and their consumption of luxury imports. We will suppress the price of food and fuel for ordinary people and transfer the cost of that subsidy to luxury imports. The adjustment to a sustainable path will be borne by the priesthood and their supporters.

      The country will refocus towards the Physical Economy, producing sufficient food and energy in a circular sustainable manner. Government will invest directly to bring this about and functionally tax to make the economic space where necessary. No more do we bend knee to FDI. Instead the future will be outward investment – bringing up the standard of living in other nations and showing them the new way forward.

      If there is anything to learn from the chaos of this decade it is that the data analysis is there to back up the PR, marketing and mind manipulation, not to discover ‘the truth’. The truth is always whatever narrative enough people believe, because that is what they will vote for.

    3. While no-one can question your analysis, a lot is happening in the UK that feels like negative consequences of Brexit. Examples include the enormous difficulties for smaller businesses to export at all into the European market, the ongoing efforts to remove all kinds of regulations fro the EU that were beneficial in society (environmental regulations, food safety regulations, are just two examples, but even social rights are under threat), and finally all the social difficulties that people with partners from EU countries are facing, or who can no longer travel or move so easily. Further examples include the impossibility of working on EU research projects or the participation of students in the Erasmus programme. Finally the ongoing political crises in Northern Ireland should not be ignored. All these examples may lie outside economics proper but create the sense that Brexit has been a hugely damaging initiative.

      Of course, you can say that many of these effects are the result of choices by the Tory party which could have been avoided. Nonetheless the general feel in the UK of a country in collapse has not made anyone see Brexit favourably.

      So we wait still to see if Brexit will bring anything positive to ordinary citizens lives.

    4. @ Christopher Brewster,

      “……..you can say that many of these effects are the result of choices by the Tory party which could have been avoided.”

      OK. Many of these effects are the result of choices by the Tory party which could have been avoided.

      ” Nonetheless the general feel in the UK of a country in collapse has not made anyone see Brexit favourably.”

      “Anyone” ?? Net Attitudes haven’t changed that much. There have been some shifts in either direction. We don’t know the terms, if any, that will be on offer in the event we do re-apply to join the EU. They probably won’t be that attractive and will likely cause a shift in public opinion towards a stay -out position.

      It’s quite remarkable that six years on from our vote to Leave the EU there are those who still want to re-run all the 2016 arguments. If the EU starts to outperform the UK there will be more of a case for re-joining. However, if the recent comments of Christine Lagarde are anything to go by the EU-ophiles in the UK shouldn’t be holding their breath.

    5. If we need proof of what the EU is about, we just need to look at Italy.
      The third economy of the blob is going down at an alarming rate.
      And all started with the euro. And we all know why.
      Meanwhile, Italy became ungovernable and, right now, the Italians turned again to snake oil peddlers (populist authoritarian governments never were the solution to anything).
      It’s an ilusion to think that those jugglers know a way out of the conundrums Italy is mired in.
      The same for Portugal, Spain and Greece (France is trying once again to lead the blob, at the expense of the French lower classes).
      We’re all waiting for something, but that something can only be a general bankrupcy.

    6. “Examples include the enormous difficulties for smaller businesses to export at all into the European market”

      Exports are a real loss to the country. Why would you want to encourage that, let alone sacrifice domestic wage conditions to them. Those small businesses need to reorient to the rest of the world, or the domestic market.

      “efforts to remove all kinds of regulations fro the EU that were beneficial in society (environmental regulations, food safety regulations, are just two examples, but even social rights are under threat)”

      British right are superior and we’ve had them for decades, if not centuries. Why shouldn’t Parliament decide what regulations are good for the UK. Then we can vote for them or vote against them – which we can’t do with the European Commission.

      “and finally all the social difficulties that people with partners from EU countries are facing, or who can no longer travel or move so easily”

      The vast majority of people don’t do that. They stay pretty much exactly where they always have been with partners from their local area. Why should we have policy set for a tiny minority of globe trotting elites?

      Moreover it didn’t stop the UK creating a world wide empire. The British have travelled and worked across the globe for centuries without requiring permission from Brussels.

      Brexit has been damaging to precisely the set of Global Metropolitan Elites that it was supposed to be damaging to. It’s been of great benefit to HGV drivers living in Rotherham and married to a lass from Mexborough.

    7. Reuters report from 2021 on warehouse staff shortages. Prodrive recruitment head moaning about staffing costs.

      “He is offering a 25% increase in pay for a standard warehouse operative role. While he can secure more workers at that rate, he said the higher pay meant workers were less willing to do overtime.

      “We’ve never seen a market like this,” he said, adding that his former European workers had opted to go to France or Germany, where they do not need visas.”

      Isn’t a 25% raise for warehouse workers a “positive to ordinary citizens’ lives” or is it only university students and researchers who fall into that category?

    8. Geopolitics

      If educated people can’t see it by now they’ll never see it, as the geopolitics plays out in full view right in front of them. How on earth can they miss it ?

      Remainers/ neoliberals/ globalists/ neo colonists whatever label you want to call them are back in charge. How many times since the 80’s have they created a crises deliberately to get their way. It’s like countries who deliberately borrow in a foreign currency and borrow from the IMF. Nothing but a soap opera with the usual faces playing their role. It is one big stage full of actors that have been handpicked exactly for that role. All backed up by the media in a coordinated fashion to make sure the status quo remains.

      Glenn Greenwald nails some of it in my view and how I think things have developed…

      “MAGA is no saviour. A number of left wing and right wing voters think Trump is going to save them. Or even worse Musk.

      There’s real and substantive internal division on the US right in both foreign and domestic policy. The early Tea Party and Ron Paul’s relative success captured that before Trump used his celebrity, charisma and media attention to win with it. Trump’s 2016 campaign was based on denunciations of Reagan/Bush/GOP orthodoxy on domestic policy and Bush/Cheney/neocon orthodoxy on foreign policy. That’s why neocons and the GOP establishment hated him.

      Just go look at what Trump said in 2016 about social spending, tax cuts, foreign policy, benefits for the working class. Little of it happened because he surrounded himself with Reagan/Bush Republicans. They’ll use MAGA as a pose, a vibe, and Wokism but they’re Pompeo/Kushner on policy.

      One pivotal moment for this was when Jared Kushner won his power struggle over Steve Bannon. Kushner is pure Chamber of Commerce on domestic policy and neocon on foreign policy. So many like him cynically grabbed the “MAGA” label while continuing Bush/Cheney orthodoxy.

      There’s so little clarity on MAGA policy because Trump’s winning 2016 campaign rhetoric often bore little resemblance to what his Administration did. It was filled with old-school GOPs of the type he denounced, who flattered him and thus got their way: The Mike Pompeo Syndrome. The main problem is utter doctrinal confusion about what “MAGA” even means. So many who claim this label agree on almost nothing beyond hating the media and the excesses of woke culture.

      Same what the center-right Blairites in Labour purposely sabotaged Corbyn, because they’d rather have lost to Theresa May or Boris Johnson than win with Corbyn.The establishment wings of both parties have way more in common than differences and support each other. Which is the geopolitical landscape all across the West. The geopolitical status quo must remain and Brexit must be reversed has always been the underlying framing and narrative from those who say they love democracy.

      with mainstream news outlets have plummeting to an all-time low. When Big Tech began censoring, liberals suddenly adopted libertarian theories to insist that private companies could do whatever they want, and it’s not censorship. Yet it is “pure censorship with the EU and UK legally banning anyone from airing what they dislike.

      A key point on censorship: In every society that uses it, the same story is told to make the population support it: It’s not really “censorship.” It’s just that your enemies are so uniquely dangerous, their views so unusually harmful, that public safety requires suppression.This censorship regime, though “arbitrary” in the sense it is controlled by unseen authorities who offer no process or explanation for their banishments, is anything but random. It is driven by Western security state agencies to ensure no dissent from their agenda can be heard. Much of this censorship and other forms of punishment for dissent stems from a new and utterly fraudulent “disinformation” industry. Funded by Western security state agencies and neoliberal billionaires, it exists to make censorship appear scientific rather than ideological. ”

      Tune into any economics program on TV and it is there for all to see. They are not stupid they are playing a role. A character fully funded to spread myths so that the status quo remains. It is the unprecedented crisis we face of billionaires buying and controlling the flow of news and information. The claimed expertise is fraudulent. It’s a thinly disguised scam to justify official decrees of Truth and Falsity — controlled by establishment centers of power — and then censor and punish based on them.

      With left and right wing voters moving to far right websites and social media to get their news. That are funded by other billionaires with their own political views. GB news in the UK is the voice of the tea party and UKIP. Funded by the same very people. Faces who were once considered the fringe are now front and centre.

      Which is all just a battle of the establishment, the elite political class. The factions within it. Who are fighting with themselves over who gets the control over us. Who gets us to tell us how we should live, what pensions and what wages we are going to get. Making sure they divide us every step of the way while promising that they represent us. Who are more than willing to destroy peace to get their way. Which is just history repeating itself over the last 1000 years.

    9. We shouldn’t listen because disinformation is the most powerful weapon; sad as it is, it’s irrelevant whether ignorance is being disguised as intelligence – they’re picking a side.

      We know this better than any other country by the complete intentional fabrication of the Indigenous population as primitive savages whose knowledge of the natural world is propagandised as only mythologies; despite having needed that knowledge to colonise.

      Even those who we attribute as the incubators of western civilisation, tell us themselves that their accumulation of knowledge was from the ancient Egyptians; even admitting to their lack of ancestral wisdom.

      This is nothing new, no matter how much these agents of ignorance narrate fanciful tales, the evidence around the real world speaks for itself.

      In our current time, particularly black women, but also other “minorities” contributions to the advancement of society goes unrecognised and is infused with collective success; male “futurists” often popularise non feminine attributes – any wonder why we’re so out of touch with reality.

      This ongoing deliberate reforming of lies as truth, the neglecting of facts, and the absorption of ingenuity, all in order to frame the world in a particular way is gradually being dismantled by the overwhelming evidence of the world outside their imagination; how many can look beyond their boundaries will be interesting to see.

      MMT’s truth is profound and quite amazingly being spread out through the masses – but its surrounded by an enemy that will never give in because they’re strategically everywhere; they often play both sides so as not to be defeated – only those who deeply know can see through their disguise.

    10. “Wouldn’t it have been beneficial to have a customs union agreement with the EU”

      You don’t need any sort of agreement when you have a floating rate currency. Agreements and trade deals are fixed exchange rate, export-led thinking.

      Why would the UK want to impose costs on the rest of the world just because the Spanish want to protect their Orange market?

      Inbound tariffs should be dropped unilaterally and only imposed during a shift in the terms of trade – like we have now – so that any price rises in ‘needed’ imports is transferred to ‘discretionary’ imports, which should help export the inflation elsewhere.

    11. FT,

      Gets it ! Nails it.

      We have called the blob stupid for 20 years. You could start off in the UK with Robert Peston and go right round the block and finish with Andrew Neil. They are anything but stupid they are playing a role. A character that are

      ” strategically everywhere; they often play both sides so as not to be defeated ”

      Democracy in its current form is a sham. Just look at the US midterms and all the whoha around it as if it actually means something. When the reality is it is a travelling circus.

    12. @Neil Wilson

      Re “exports are a cost”. Exports are needed to give your currency value to external users. The level of the currency with a floating exchange rate determines the quantity of imports that can be obtained. There are many goods and services that Britain cannot and will never produce efficiently or at all.
      There are no countries that truly apply free trade principles. Trade treaties are negotiations of terms – in their absence the terms of trade would most likely be less favourable.

    13. @dmn, You wrote: “There are no countries that truly apply free trade principles. Trade treaties are negotiations of terms – in their absence the terms of trade would most likely be less favourable.”
      But, you did not say who it was less favorable to.
      Compared to if there is or isn’t a Gov. trade agreement, can an individual foreign trade deal be favorable or unfavorable to both at the same time? I do not think so.
      AFAIK, all such deals are more or less favorable to 1 side of the deal or the other.
      So, if a deal is less favorable for 1 side, it must be more favorable for the other side.

    14. @Steve_American

      Free Trade 101 is win/win. Actually existing trade arrangements may be lose/lose. An agreement can improve returns to both sides, although as you point out, it is unlikely that the improvement will be symmetric.

    15. “Exports are needed to give your currency value to external users”

      That would be veil over barter thinking.

      Export led growth concepts are about obtaining money, so the domestic operation can hide the discounting of the power to tax behind an entry in the national balance sheet somewhere called ‘foreign reserves’ – hence why Russia et al pile them up.

      The idea is to give as few exports for as many imports as possible. And savings are an export product.

      “Trade treaties are negotiations of terms”

      Trade treaties are not required in a system of floating exchange rates and competition between currency areas.

      If you open your area to trade then subject to certain strategic issues (like ensuring you are systemically autarkic in food and fuel amongst other things), the float and simple competition for your business will favour those areas with the lowest barriers to your exports.

    16. @Neil Wilson
      You’ve lost me. Where is the barter? Trade is exchange mediated by the relative value of two currencies. The relative value in a floating system is determined by net trade flows (leaving aside fx speculation). In order to exchange your currency needs to have some value for the other party. Growth strategies are another matter.

      Regarding trade treaties, there are always strategic issues, for both sides, and trade overt or covert trade barriers are ubiquitous.

    17. “The relative value in a floating system is determined by net trade flows (leaving aside fx speculation)”

      It isn’t. Trade in good/services is about 1.5% of total currency market activity. Even if that was out by a factor of 10 that’s only 15% of the activity.

      Since there isn’t a one-to-one relationship between money and stuff that matters.

      Perhaps time to read some John T Harvey.

      Even supporters of purchasing power parity admit that it only holds in the long run – a period of time they say is equivalent to years or even decades. The more likely answer is that it does not hold at all. Because the factors that determine the demand for goods and services differ significantly from those that drive financial capital flows, purchasing power parity cannot possibly explain real-world currency movements. And without purchasing power parity and the full-employment assumption, the Monetary Model no longer serves as the intellectual foundation for the MMT-as-currency-killer argument.

    18. The ability of working people to get hold of all those lovely imports and enjoy a nice foreign holiday
      Is undermined by depreciation of the currency.
      Fx speculation can be a real hit.Any excuse for a self fulfilling prophecy and some easy profits.
      Non orthodox government fiscal policy will have speculators rubbing their hands and mainstream
      Economic media will describe as markets getting spooked.

    19. “The ability of working people to get hold of all those lovely imports and enjoy a nice foreign holiday
      Is undermined by depreciation of the currency”

      That’s the adjustment mechanism. Luxury imports are suppressed.

      The ability of working people to own a home is undermined by interest rates going up and energy prices remaining high – which similarly stops them buying imports and foreign holidays. As well as crippling the housebuilding industry when there are insufficient homes.

      Something has to go up in price to stop people buying it. It’s about winning the argument of what it is to be.

    20. Wray, L. R., P. Armstrong, S. Holland, C. Jackson-Prior, P. Plumridge and N. Wilson (eds.) (2023), Modern Monetary Theory: Key Insights, Leading Thinkers, Northampton: Edward Elgar Publishing Ltd.

    21. Luxury imports like food?
      Not saying interest rates should go up.
      But if a party would adopt a mmt informed stance ,get elected ,get all their mps to vote for an
      Unorthodox budget take over the running of the central bank there would be a depreciation of the exchange rate of the currency .Yes I know there would be winners and losers but the majority of working
      People would be losers.
      Lets face it such a scenario is never gonna happen .The revolution is not gonna be televised because it is never gonna happen.Power corrupts.
      My simple point is a strategy to import as much as possible is undermined by FX speculation.
      Better to try and be as self sufficient as possible

    22. “Luxury imports like food?”

      That’s your answer. Seriously?

      Luxury imports like gas guzzling cars. Food and fuel would be fix priced by subsidy and luxury imports levied. That shifts any initial currency depreciation onto those items that need to be eliminate.

      The UK isn’t in the “we only import vital stuff” position yet.

      “My simple point is a strategy to import as much as possible is undermined by FX speculation.”

      Not particularly. For every seller there has to be a buyer and very rapidly speculators run out of liquidity to play with. Then they get squeezed.

      When the terms of trade change you can either try and buy more financial exports by putting up interest rates, or you can suppress discretionary imports.

      The strategy isn’t to import everything. The strategy is to take advantage of those doing ‘export led growth’ by taking their stuff in return for mere financial exports that they may or may not be able to cash in in the future.

      Strategically the country must be ‘systemically autarkic’ – particularly in food and fuel. The belief that the ‘market will provide’ is misguided, and fails to take into account the necessary resilience. Which is why we’re in the pickle we’re in.

    23. Well I agree with the last paragraph.
      Of course I didn’t mention the carbon admissions of unnecessary trade.
      just out of interest do you actually believe any of the government programs which you describe
      Will happen?
      If so you are going to your grave a very disappointed man following in the footsteps of generations
      Of political economic ‘visionaries’.
      It’s the hope that gets you.

    24. I voted Leave twice, but was surprised when we did and was horrified at the way it was done. My comment here about having a better deal with the EU was dismissed – but I’m still uncomfortable. There was an article in Guardian today (read online – would never pay to do so) about a cheesemaker (‘blessed be’) whose business was ruined by Brexit. We’re all focussed on macro here but should we always ignore the micro? Of course, the cheesemaker adjust over time, but I still can’t see anything so bad about a customs union. What would have been a better solution to protect real people rather than the ‘labour force’?

    25. “Of course, the cheesemaker adjust over time, but I still can’t see anything so bad about a customs union.”

      Why do you want to support people who makes cheese for foreigners rather than cheese for Britons?

      A customs union is a very silly idea for the fairly obvious reason that it allow Brussels to impose costs on our imports. We want to eliminate all costs on imports and accept product from anywhere in the world.

      The obsession with exports has to end. The UK makes needs to start making stuff for itself again, and export only what is a genuine inadvertent surplus. That requires heavy industrialisation and economies of scale, not pandering to silly cottage industries beloved by the middle classes.

    26. “We want to eliminate all costs on imports and accept product from anywhere in the world”

      Impossible without trade agreements on conformity (that doesn’t mean standardisation) no conformity e.g. The EUs CE marking then goods will have to be checked as you don’t want little Suzies doll going up in flames. Checking means costs.

    27. Just to add a Customs Union wouldn’t have solved conformity issues as they are purely about tariffs.

      The idea that a Customs Union brings down barriers is incorrect. It is the Single market that did that. Customs Unions are paperwork heavy.

    28. “Impossible without trade agreements on conformity”

      That’s not true is it. Waitrose isn’t going to order imports that don’t conform to UK standards because they would just end up with a load of cost under the Consumer Rights Acts.

      Checking then comes from the those doing the retailing because they are the ones who stand the loss if things are not to standard. Contractual terms imposed upon suppliers enforces those standards which are passed down the supplier chain in a viral fashion along the same lines as ISO 9000.

      The Benefit of Brexit is to abandon the rigid ‘hard shell’ approach of the EU for a back pressure approach that relies upon strong Consumer Rights against retailers with recourse to the Banks via Section 75 credit protection.

      What checking we need is then limited to the phytosanitary requirements to try and halt infective and destructive pests at the border.

    29. Neil
      You said eliminate all costs on imports.

      Not sure Waitrose have but Tesco certainly have had issues http://news.bbc.co.uk/1/hi/business/102177.stm what you are suggesting is a smugglers charter.

      Border checks on foodstuffs are a cost (and if you have ever used a BCP you wouldn’t be laughing at the cost, see https://www.hullandgoolepha.gov.uk/files/bcp-charges—july-2020.pdf a bit of date now but no matter). With a trade agreement (e.g. The EU/NZ agreement checks are minimised due to the agreement in conformity wrt slaughter house procedures) you can cut the checks cutting costs. Without agreement on conformity then checks are and have to be mandatory because how else are you going to protect consumers.

      And no it isn’t just foodstuffs it also includes aircraft parts as counterfeit parts is a major issue. Dodgy lithium batteries is a big issue for us right now … I could go on and on.

      It sounds as if you want a US style regulatory system where it goes to litigation ex post. We mostly use an ex anti system.

      I am not commenting on whether leaving the EU is a good idea or not, as it’s done so have to get on with it.

    30. “what you are suggesting is a smugglers charter.”

      Come on. You know it is dealt internally on a risk analysed basis. There is no need to do it on import into the UK.

      “Without agreement on conformity then checks are and have to be mandatory because how else are you going to protect consumers.”

      By mandating that orders from the UK require purchases that conform to our standards – which they will do because otherwise you can’t retail the item.

      “It sounds as if you want a US style regulatory system where it goes to litigation ex post.”

      It doesn’t sound like that at all. What it is is a distributed system rather than a centralised one at the ports. Like with ISO 9000 you eliminate the problems at source rather than trying to patch it up after the fact. And you do that by putting the liability onto UK entities so that no legitimate UK entity will touch dodgy stuff with a bargepole – as it would fold the business.

      There is no difference between agreements on conformity at country level and precisely the same conformity requirement implied into contracts. If somebody wants to ignore them, they can – and they will anyway.

      Even border checks on foodstuffs, etc. can be limited. There’s no need to check anything coming from the EU any more strictly than we did prior to leaving. Any checks should be strictly related to evidenced risk.

    31. One of the things I’d hoped for from Brexit was a ban on import of animal products that do not meet our high(er) welfare standards. That’s been blown out of the water permanently, it seems, with the Australia/New Zealand trade agreements.

    32. Dear Bill, I hope you don’t mind me continuing to comment on this oldish post, but I’m eager to learn.
      There’s an article in today’s Guardian (read free online – never buy) about the shortage of doctors caused by Brexit. The end of free movement saw a big exodus of EU nationals from sectors such as care and hospitality as well. One of the reasons I voted Leave was because the accession of Poland in particular, shortly followed by Romania and Bulgaria, put downward pressure on the wages of those in the lower skilled sectors. I was very good friends with an extended family of Polish ‘immigrants’ and could see that they were willing to accept very poor wages and conditions and never joined unions.
      So I’d like to ask whether the end of free movement had any benefit. I guess the answer really is no, because the remedy was, of course, to raise the statutory wages and working conditions of everyone.

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